PRODUCTION FUNCTION IN THE SHORT RUN

The short run production production assumes there is at least one fixed factor input

Production Functions

• The production function relates the quantity of factor inputs used by a business to the amount of output that result.

We use three measures of production and productivity:

Total product (total output). In manufacturing industries such as motor vehicles, it is straightforward to measure how much output is being produced. In service or knowledge industries, where output is less “tangible" it is harder to measure productivity.

Average product measures output per-worker-employed or output-per-unit of capital.

Marginal product is the change in output from increasing the number of workers used by one person, or by adding one more machine to the production process in the short run.

The length of time required for the long run varies from sector to sector. In the nuclear power industry for example, it can take many years to commission new nuclear power plant and capacity. This is something the UK government has to consider as it reviews our future sources of energy.

Short Run Production Function

• The short run is a time period where at least one factor of production is in fixed supply
• A business has chosen its scale of production and sticks with this in the short run
• We assume that the quantity of plant and machinery is fixed and that production can be altered by changing variable inputs such as labour, raw materials and energy

Diminishing Returns

• In the short run, the law of diminishing returns states that as more units of a variable input are added to fixed amounts of land and capital, the change in total output willfirst rise and then fall
• Diminishing returns to labour occurs when marginal product of labour starts to fall. This means that total output will be increasing at a decreas
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